TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 111
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....her reasons and hence the same kindly be deleted. 2. Rs. 20,22,110/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance made by the AO of the interest paid on the borrowed capital used for business purposes and rightly claimed u/s 36(1)(iii) of the Act. The disallowance so made by the AO and confirmed by the Id. CIT(A), being contrary to the provisions of law and facts, kindly be deleted in full. 3. Rs. 5,74,585/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the denial of the benefit of the set off of the unabsorbed business losses of Rs. 5,74,585/- carried forward from A.Y.2012-13. The unabsorbed business losses so not permitted to be set off, being contrary to the provisions of law and facts, the AO kindly be directed to allow the benefit of the set off as claimed. 4. The Id. AO further erred in law as well as on the facts of the case in charging interest u/s 234B of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full. 5. The appellant prays your honour indulge....
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....ble as an expenditure incurred for the purpose of the business u/s 36(1)(iii) and/or 37(1). 2.2 In the present case, there are several indications, which go to show that the assessee had not only set up the business of real estate but even commenced such business as evidenced from the chronology of the following events (at a glance table is also enclosed with the WS): * The appellant purchased the agricultural land at Foysagar Road, Ajmer on 14.12.2011 & 30.01.2012 i.e. in A.Y. 2012-13 (Admitted by AO at page 2 PB 9). * The assessee started the process of getting the said land converted (from agriculture to residential) u/s 90A of Rajasthan Land Revenue Act, 1956 (PB 16). * Rs.2 Lakh were deposited towards security amount (_____) for said conversion u/s 90A of Rajasthan Land Revenue Act, 1956 on dated 15.02.2013 (PB 11 & 64). * Further deposit of Rs. 50,000/- made to the UIT towards the approval of the layout plan on dated 05.03.2013.(PB 64) * The site plan submitted by the assessee was approved by Ajmer Development Authority (ADA) on 15.03.13 (PB 12) [A.Y.2013-14] i.e. during the year under consideration [CIT(A) pag 25 top]. (However, the ....
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.... whole business. The assessee, therefore, rightly undertook the first step of real estate business by acquiring the subjected land (which was used as stock-in-trade and developed as per business planning), during the year under consideration and laid down the foundation of real estate business. 2.4 In the facts of the present case therefore, it cannot be disputed that the assessee had already set up its business in A.Y.2012-13 only by taking so many steps as narrated hereinabove. Notably, the lower authorities also have not raised any dispute on this aspect. 3.Distinction between setting up and commencement of business: The only objection of AO was that subjected expenditure was incurred prior to the commencement of business. But the settled law is that there is a difference between the setting up of business and commencement of business. An expenditure is fully allowable u/s 36(1)(iii) and/or 37(1), if the business is found set up without waiting for the very commencement of the same. 4. Supporting Case Laws: This proposition is supported by various case laws as citied below. 4.1 There is a distinction between "setting up of business" and "commencement of business" and a....
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.... of assessee had commenced is a question of fact & if Tribunal as, after appreciating entire material on record, found that business of assessee was set-up on a particular date, it would be a finding of fact from which no question of law can be said to arise-Attempt, therefore, should be to see as to whether Tribunal had taken note of appropriate circumstances & applied proper tests in arriving at conclusion which it did-Tribunal had observed that having regard to business of assessee, participation in tender represented commencement of one activity which would enable assessee to acquire land for development-If assessee was in a position to commence business that means business has been set-up-Acts of applying for participation in tender, borrowing of monies for interest, deposit of borrowed monies on same day as earnest money were all acts which clearly established that business had been set-up-Commencement of real estate business normally starts with acquisition of land or immoveable property-When an assessee whose business it is to develop real estates, is in a position to perform certain acts towards acquisition of land, that would clearly show that it is ready to commence busi....
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....is one transaction, still then it is an adventure and a business. If someone starts a business and then leaves it after one transaction, even then it would be a business. As such a sporadic action cannot be singled out to discard that it is not part of the business.-Edwards (H.M. Inspector of Taxes) vs. Bairstow & Harrison 36 Tax Cases 207 (HL) applied" 4.4 Also in CIT v/s Saurashtra Cement & Chemical Industries Ltd (1973) 91 ITR 0170 (Guj) (DPB 24-35), it was held that: "Business income-Commencement of business-Business is nothing more than a continuous course of activities-All activities which go to make up business need not be started simultaneously in order that business may commence-Business would commence when activity which is first in point of time and which must necessarily precede the other activities is started-Business of the assessee manufacturing cement consisted of three categories of activities, namely (i) extracting limestone from leased land (ii) manufacture of cement by user of plant and machinery (iii) selling manufactured cement-These activities combined together constituted business-Hence business commenced when the first category of activities, namely ext....
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.... claim expenditure incurred on or after that date as revenue expenditure, no substantial question of law arose" 4.8 CIT vs. IBC Knowledge Park P. LTd. (2016) 136 DTR 65/287 ITR 261 (Kar) (DPB 51-55) The ratio so laid in the above cases squarely apply on the facts of the present case where the revenue has not disputed the fact of setting up of business but as a misconception of law, ignored the same and therefore, such expenditure are allowable. The AO [in remand report - CIT(A) page 7] has vaguely alleged that the notice of demand from ADA was raised on dated 18.06.2015 falling in A.Y.2016-17 hence, there was no commencement in this year but ignored the other steps which were admittedly taken by the assessee and supporting evidences of which were already available on record showing that business has already set up but the civil litigation, delayed permission. 5. The observation & conclusion of the AO that the assessee purchased the land for the purpose of investment and not for business, is completely unfounded. The controversy involved is not new. The question whether a particular assessee is a trader or an investor and has been holding the land/s (or shares) as its stock in....
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....accounting entries are not decisive of true character of the transaction as held in Kedarnath Jute Mfg. Co. Ltd. v/s CIT (1971) 82 ITR 363 (SC). Moreover, such presentation in balance sheet is also irrelevant in as much as a taxpayer is free to employ, for the purpose of his trade, his own method of keeping accounts as held in Investment Ltd. v/s CIT (1970) 77 ITR 533 (SC). Also, the entries made by an assessee in his books of account are not determinative. What is necessary to be considered is the nature of the transaction as held in Sutlej Cotton Mills Ltd.v/s CIT (1979) 116 ITR 1 (SC). 7.2.2 Secondly, with regard to the repeated allegation of the AO that such transaction were debited in the personal set of accounts, it may firstly be clarified that the assessee was running three different businesses in its different proprietary namely M/s Sanwaliya Seth Jewellers relating to trading of silver, second was the real estate business in its proprietary namely M/s Shree Ji Vihar (earlier known as M/s Sanwaliya Seth Builders) and third was the commission agency business (without giving any name to it). Whereas, the assessee was having separate books of account for M/s Sanwaliya Set....
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.....r.t. a capital asset even then, so long as S.36(1)(iii) is concerned, it is fully allowable in as much as the said provision do not make any distinction between the nature of utilization of borrowed funds viz whether it is utilized towards the acquisition of the revenue asset or a capital asset. Hence, also the claimed interest was fully allowable. There are various decision to support this contention. 8.2.1 Kindly refer CIT v/s Rajeeva Lochan Kanoria (1994) 121 CTR 0342 (Kol) (DPB 42-48), wherein it was held that "the enquiry that is to be made is whether the payment of interest was in respect of the capital borrowed for the purpose of the assessee's business. The amount borrowed may be utilised for the purpose of acquisition of stock-in-trade or for the purpose of acquisition of capital assets. So long the money is utilised for business purposes, the interest is allowable as deduction. It is well settled that business expenditure is not confined to expenses incurred on revenue account. Capital expenditure may not be allowed as a deduction under section 37 because the section specifically bars any deduction of expenditure of capital nature. But section 36 is differently wor....
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....ture from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC). "We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 10.2 Later Years: Notably, even in the later years i.e. A.Y.2015-16 (except AY 14-15) also, even though the assessee did not sale any plot, the claim of interest of Rs. 17,28,861/-, similarly made has been allowed vide the scrutiny assessment order dated 29.12.2017 u/s 143(3) (PB 62- 63). 11. Cases cited by Revenue are completely distinguishable: 11.1 The AO relied upon certain decisions. However, all those cases were based on ....